Service Businesses That Don't Serve

Service Businesses That Don't Serve

The defining trait of a customer is the capacity to choose to not consume. A ‘service’ business such as an internal analytics business unit or a public sector agency only has customers if the intended beneficiaries of the agency can choose to not consume the service in question. If they cannot choose to not consume, they are not customers. Which means the business unit or agency does not provide a service.

The idea of service is bound up in the idea of duty, which is about providing something that is owed. Service becomes about performing a task for someone. If the someone cannot refuse the task, then the relationship is not one of duty. It is a relationship of command. In the post-war era public sector doctrine this relationship is summarized by the phrase ‘voluntary compliance’.

To comply is to fulfill an obligation. This means that compliance is also tied up in the idea of duty. We might expect that it is a good thing for us and others to fulfill an obligation, to do our duty to each other. In which case to comply is an act of volition that we might feel proud of. There is a choice element in play.

But if we cannot choose not to consume and if we cannot escape an obligation that is placed upon us, then we are surely not in a service relationship. For ‘service’ businesses this becomes a very serious problem. This is because they cannot leverage off a market test, which is where a customer chooses not to consume. Because they don’t have the signal ‘your product/service is awful and I’m going elsewhere’, ‘service’ businesses lack a critical feedback mechanism around what is working and what is not.

This situation imposes a significant deadweight cost on the larger entity that sustains the business unit or public agency. In the case of the business unit it is the enterprise and in the case of the public agency it is society. The basic complaint against these service businesses is that they become ineffective. In the case of the enterprise a business unit can eventually be closed down. But public agencies tend to think that they are making a critical contribution to society and expect to be around forever.

This is not a rant against the public sector or the functional business model (I’ve written on both topics at length on this blog). This post is the first of a small series that is going to look at the fundamental problems of the ‘service’ business. In the same vein that I think our language is failing us in the manager vs leader debate, I think the same situation applies to how we look at ‘service’ businesses.

The root cause of the problem is that, without the benefit of a market test, the ‘service’ businesses is funded on the basis of it’s promise to deliver against its intent. As I’ve written before, a decision is proven only by the existence of an action. Otherwise it is an intention. The service business is funded for its intention (in the form of a budget allocation), but is rarely assessed on how well it converts that intention into action.

Part of the problem is our blindness around the measurement of ‘intangibles’. Part of the problem is that contribution to outcomes is hard to pin down. Part of the problem is around the issue of futurity (which I wrote about at length previously). But the main issue to my mind is around how performance is rewarded in ‘service’ businesses. If you are deemed to do well, then you get a bigger budget.

Given how easy it is to find evidence that confirms expectations and to point the finger at other elements of a badly performing functional business model, getting a bigger budget becomes the professional goal of ‘service’ business managers.

This is a classic case of goal displacement: “the substitution by an organization, of the goal or goals which it was established to serve, for other goals”. In the cognitive literature this is observed as our tendency to replace a difficult question that we can’t answer with an easier question that we can. In public speaking this is observed as the advice to ‘answer the question you want’.

Whatever the case, it’s my sense that getting to the heart of this problem is absolutely critical to the long term success of businesses at the enterprise level and of public agencies at the government level. I don’t have the answers: that’s what the next few posts will be for. But for the moment, contestability and interruptabiliy (for want of a better word) of budget allocation looks to be an important part of the puzzle.